The global automotive finance market is poised to witness a significant growth owing to factors such as decreasing unemployment rate and higher per capita income levels. Increased accessibility to capital markets is further anticipated to impact the industry growth favorably. Declining fuel prices coupled with growing disposable incomes is instrumental in increasing consumer confidence in automobile purchase.
Vehicle replacement rates in developed countries such as the U.S. are on a rise, and the region is expected to maintain steady growth in automotive sector over the next seven years. The industry is witnessing the launch of new products in the automotive sector in various segments making them affordable in emerging economies and is subsequently fueling automotive finance market growth.
Increasing population in emerging economies and high GDP growth rate is consistently energizing the industry prospects. Tier-2 and Tier-3 cities do not have restriction policies on ownership of automobiles on account of less penetration in the market.
Rising environmental concerns owing to increased pollution levels and automotive eco-monitoring regulations imposed by the government are limiting the use of mainstream automobiles. Additionally, schemes such as car sharing, corporate carpooling and start-ups in the sector are defining the automotive industry and thus the related funding area.
Challenges that may hinder the upward trend in the sector are the dependence of automobile buying on the future outlook of the economy and the practical consumer buying confidence. Competition in the industry is stressing operations, credit underwriting standards are stringent, loan pricing margins are affected by competition, compliance, and risk management aspects of the product need to be reworked.
Regulations on credit provision are forcing lenders to reframe their strategies for products, operations, business processes, systems, and controls. Auto finance companies need to focus on customer life cycle, decreasing bad debts and compliance to regulatory requirements.
Chief Automotive funding players are either part of banks or automobile company captives that operate in prime markets, so new entrants are to function in ancillary markets. As banks are expected to move away from the segment of financing, automakers themselves are presumed to launch cost effective ways of credit provision to get more buyers and borrowers and customizing loans and products to individual customer needs.
The opportunities presented by the market are diverse portfolio availability, management of core systems and data for operational movements. Key industry players are accentuating on collaborating with automotive dealers and are offering online financing services. To boost sales and strengthen customer base, vendors now provide customer friendly approval processes such as automated and fast clearances and documentation.
Vendors are emphasizing on offering special packages coupled funding for insurance and services, especially in rental segment. Focus on business customers such as car rental companies and transportation start-ups with customized products for the B2B segment is expected to propel industry growth. Designing end to end solutions for business customers from origination, underwriting and funding, wholesale floor plan management, retail portfolio management, collection and servicing, recovery and liquidation providing comprehensive solutions shall enhance the scope of the segment.
Automotive financing includes the provision of sales financing, leasing, and insurance for both personal and commercial vehicles. Sales financing institutions offer money for the purpose of providing collateralized goods through contractual agreements on an installment basis. Lender type into banks can segment the automotive finance market, investment firms, credit unions, captive finance companies and Buy Here Pay Here (BHPH) dealers. Banks and captive finance players are expected to account for a substantial share.
While nations such as U.S., Canada, The U.K. are advanced in the industry growth rate in this region is low. The production is projected to witness remarkable growth in emerging economies such as Brazil, Russia, China, and India. The growth can be attributed to several factors such as a rise in population, proportion of progressing middle class, limited buying capacity, and realization of benefits of auto financing among them.
Major players in the market are, Chase Auto Finance, Ford Motor Credit Company, Toyota Financial Services, Ally Financial, Wells and Fargo Dealer Services and Allianz.
Essentially automotive financiers are adopting data-driven strategies to monitor performance metrics precisely and portfolio structuring that is data driven. Regular calibration of customer segments, tiers and models have led to knowing the customer and new product development. Companies need to understand fully existing opportunities as to understanding the capabilities at present and in the future making better decisions and prioritize their investments.
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